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Simeon Gutman: Welcome to Thoughts on the Market. I’m Simeon Gutman, Morgan Stanley’s U.S. Hardlines, Broadlines and Food Retail Analyst.

Today: the state of the pet economy, or as we lovingly call it, the “petriarchy.”

It’s Monday, June 1st, at 10am in New York.

Hey Sammy, who wants to go on a walk?

If you have a pet, you probably know the routine. You go in for one bag of food. Then you remember the treats, the medicine, the grooming appointment. Maybe the toy they definitely do not need. And then the vet bill you hope is not around the corner.

Pets are family. But family has gotten more expensive.

That’s the big shift in the U.S. pet economy. The emotional bond is still powerful. About two-thirds of dog and cat owners strongly agree their pet is an important member of the family. More than one-third say they would take on debt to pay for a pet’s medical expenses.

Today, the growth story in the pet industry has changed. After an extraordinary post-pandemic run, it has entered a slower, more mature phase. We see growth settling around 4 percent, down from nearly 9 percent annually from 2019 to 2025.

That doesn’t mean the market is shrinking. We still see total U.S. pet spending rising from about [$]200 billion in 2025 to more than [$]240 billion by 2030. But the easy growth days look behind us. The industry now has to work harder for each dollar.

Affordability sits at the center of this story. A pet may start as an emotional decision, but it quickly becomes a line item in the household budget.  Overall pet ownership remains above pre-COVID levels, at about 67 percent, but it has slipped from the 2024 high. That pressure shows up most clearly among younger consumers for whom cost has become the top barrier.

And consumers are adapting. When pet food prices rise, shoppers stock up on sale items, compare prices online and in-store, and in some cases trade down. Still, pet food remains resilient. Almost all owners plan to keep spending the same or spend more on pet food over the next six months.

The bigger change is that services continue to take share from products, with veterinary care at the center. Services accounted for just over 40 percent of pet industry spending in 2025, and we see that moving higher by 2030. Food and toys still matter, but healthcare, prescriptions, diagnostics and routine care are becoming a bigger part of the wallet.

That brings us to vets – who remain the most trusted source of pet care information, cited by nearly 60 percent of owners. Younger pet owners still rely on vets, but they also turn more to online sources, friends, relatives and even store personnel. About three-quarters of owners visited a vet in the past six months, but average visits fell to under two, which is down from just over two in 2024. This points to a more cautious consumer, especially around routine care.

We also see a subtle shift in the kinds of pets people choose. Cat ownership has moved higher versus pre-COVID levels, while dog ownership among younger adults has pulled back from its 2024 peak. That shift is not surprising, given that cats typically come with lower overall spending than dogs.

Shopping habits are changing as well. Online pet product shopping has grown a lot since 2019, but its share of wallet has leveled off at roughly one-third.

The next leg of digital growth may come less from simply moving store purchases online and more from subscriptions, pharmacy, healthcare and broader pet care ecosystems.

So where does that leave the pet economy? Pet owners are certainly not walking away from their animals. But they are making more practical choices, watching prices more closely, and deciding where convenience, health and value fit into the same budget.

Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley.

Today, why commercial real estate debt could be overlooked and undervalued.

It's Friday, May 29th at 2pm in London.

Bond yields have risen this year, and it's attracting strong flows into fixed income markets. The problem is that all of that demand is narrowing the risk premium that one receives. Spreads on U.S. mortgage bonds are richer than 89 percent of observations over the last 20 years. Spreads on the U.S. high yield market, well, they're richer than 96 percent of the time. And spreads on U.S. investment grade, it's 99 percent.

We live in a world where the risk premium on most bonds is very low versus history, but there are exceptions. One is debt backed by commercial mortgages or so-called CMBS. Spreads here, notably and unusually, are significantly higher than the long run average. It is a market that we like.

Commercial property is largely comprised of lending against office buildings, apartments, retail complexes, and industrial sites like warehouses. The first three have faced major challenges over the last five years.

Office values have slumped as investors feared more people working from home. Apartments have suffered from significant supply in building, conceived in a low-rate world as this has come online. And retail has faced long-run concern about the trend of more online shopping. And the rise of interest rates, well, that's loomed over everything.

A building, in a lot of ways, is a lot like a bond, promising a dependable stream of rents over time. When an investor can get that stream of cash flows from the bond market, commercial property prices must adjust lower to remain competitive.

These challenges are material, but they are also not new. Indeed, investors may recall that fears around commercial property peaked way back in early 2023 following significant rate hikes by the Federal Reserve. Back then, there were widespread fears that commercial property weakness would ricochet back and threaten the banking system.

Three years later, those worst fears have not been realized. And while defaults and restructurings have happened, overall commercial property fundamentals are beginning to pick back up.

Commercial property transaction volumes increased 27 percent in the U.S. in the first quarter relative to a year prior; and prices are rising, up about 5 percent over the same period. The amount of commercial real estate debt being originated is up about 40 percent over the last year – a sign that lenders are coming back. And the number of commercial deals that are becoming distressed and unable to pay their bills, they just saw their first quarterly decline since all of those problems in early 2023.

Part of this recovery in the commercial real estate market may be explained by U.S. growth, which continues to be resilient, and some of it mirrors other cycles.

When rates rose and commercial lending markets weakened, the construction of new properties really slowed down. It takes several years to build a building, and so it's only now that the impact of everything that was not built is starting to be felt.

With less supply coming online, the value of existing property is better supported, especially relative to the more elevated risk premiums on offer for its debt.

Thank you, as always, for your time. If you find Thoughts on the Market useful, let us know by leaving a review wherever you listen. And also tell a friend or colleague about us today.